Social Cost of Carbon: How to Make Fossil Fuels Look Unaffordable No Matter How Low the Market Price

In a recent post, I discussed how the pseudo-science of social cost of carbon (SCC) estimation can be used to repackage uneconomic renewables as a bargain at any price. A White Paper by electric power industry analyst Bob Kapplemann makes the same point but, in addition, explains it by the numbers.

As background, the SCC is an assumption-driven guestimate of the long-term damage allegedly resulting from an incremental ton of carbon dioxide (CO2) emissions. In May 2013, the Obama administration’s Interagency Working Group on the Social Cost of Carbon published “updated” SCC estimates that were about 60% higher than its 2010 estimates.

Kappleman’s concise (4-page) White Paper contains three tables. Table 1 illustrates the current wide range of SCC estimates ($12-$129/metric ton CO2 in the administration’s 2013 update; $306/ton according to the Natural Resources Defense Council).

Table 2 illustrates how easily SCC estimation can make low-cost power look unaffordable. The administration attributes over $210 million a year in social costs to a 600 MW pulverized coal power plant and over $74 million a year to a natural gas combined cycle plan. In the case of the coal plant, the CO2 portion of the costs is 75% and in the case of the gas plant, CO2 is 97% of the costs.

Table 3 illustrates how easily SCC estimates can make wind, solar, and biomass look cheaper than energy from coal-fired power plants, and make “even radical reductions” in existing coal-fired generation look economically justified.

Let’s look at the tables and the accompanying figure explanations.

Figure explanation: As discussed previously, in addition to using non-validated climate sensitivity assumptions and completely speculative damage functions, the Interagency Working Group, flouting OMB best practices, further inflated its SCC estimates by not using a 7% discount rate and by not estimating the domestic SCC. 

Figure explanation: As shown by the table above, EPA’s social costs for the traditional pollutants, SO2 and in NOx, are only a fraction of those attributed to coal fired and gas-fired EGUs. While EPA’s estimates for the social cost of traditional pollutants have been criticized as excessive, EPA does have medical and statistical data supporting their monetized costs which have undergone decades of stakeholder input and peer review. However, there has been no transparent process of stakeholder input and peer review for the SCC.

Figure explanation: Assume the administration’s central SCC estimate of $43/ton CO2, and renewables become cheaper than new coal. Assume the administration’s high SCC estimate of $129/ton CO2, and renewables become cheaper than new gas. The EPA’s ability to increase the SCC at its discretion could lead to regulations not only forcing the premature shutdown of existing coal-fired generation but also gas-fired generation.

Talk about absurd results! Due to their high-cost, low energy density, intermittency and unreliability, wind and solar power are not up the task of powering a modern economy, and nobody knows whether future technological advances will fundamentally change that reality.

Regulations or taxes handicapping coal- and gas-fired generation and forcing ever greater reliance on renewables could severely damage the economy, regardless of how “efficient” the policy appears to be based on SCC hocus pocus. The social cost of carbon has become a serious menace to society.